High Rollers Bet On Cannabidiol (CBD) – Medical Marijuana Patients Come Up Short

Dixie X Elixirs and Edibles, a high-profile, Denver-based medical marijuana company, recently launched a new line of ingestible CBD products to complement its foodstuffs, tinctures and creams infused with tetrahydrocannabinol (THC).

Touted for its unique therapeutic attributes, CBD, or cannabidiol, is a non-psychoactive component of the marijuana plant. CBD doesn’t make people feel stoned and can actually counter the psychoactive effects of THC.

Most marijuana strains in the United States contain little CBD, but a few CBD-rich strains (with equal amounts of THC and CBD, or more of the later) have recently become available for medical users seeking relief from pain, anxiety, epilepsy, cancer, psychosis, and other conditions.

Featured last year in a CBS 60 Minutes segment on the multibillion-dollar medical marijuana industry, Dixie X Elixirs and Edibles is one of several companies seeking to cash in on CBD’s formidable healing properties and its non-psychoactive reputation. Hyped initially as something akin to medical marijuana without the buzz, Dixie’s CBD products are not aimed at stoners; they are geared toward a much broader population of consumers, including those who don’t want to get high. But are these products what their manufacturers claim? And are they permitted under federal law?

The legal status of CBD is somewhat muddled. Cannabidiol is conspicuously absent from the DEA’s recently updated list of proscribed drugs. But “marijuana,” including CBD-rich varieties, continues to be listed as a controlled substance.

Backed by high rollers with rap sheets, Dixie X operates under the umbrella of Medical Marijuana, Inc. (MJNA), a publicly traded start-up founded by Bruce Perlowin and based in San Diego. In the 1970s Perlowin was busted for shipping marijuana into the United States and spent seven years in prison. He is no longer officially associated with Medical Marijuana, Inc., but remains a key player in Hemp, Inc., another start-up company traded on the OTC stock exchange.

Medical Marijuana, Inc. estimates that the “CBD and wellness industry” to be “a $5 billion market.” Dixie Elixirs, MJNA’s de facto subsidiary, is the first business to mass market CBD nationwide as a “wellness product.”

In the spring of 2012, Dixie X entered into a licensing agreement with Red Dice Holdings, another subsidiary of Medical Marijuana Inc. Dixie owner and managing director Tripp Keber is president and CEO of Red Dice Holdings and a board member of Medical Marijuana, Inc. “I make companies to sell companies. Make me an offer, and I’ll ride off into the sunlight with saddlebags of gold,” Keber told The Daily Beast.

The arrangement between Dixie and Red Dice is structured so that Medical Marijuana, Inc. is able to utilize only the CBD aspect of the licensing agreement, while MJNA eschews responsibility for Dixie’s psychoactive THC products.

In September 2012 Michael Llamas, Medical Marijuana, Inc.’s president and CEO, was one of seven people indicted by the federal government and charged with running a $17 million multistate mortgage fraud scam. Shortly thereafter a MJNA press release announced that Llamas was “taking a leave of absence effective immediately . . . [and] stepping down from his position in order to focus his attention on personal business matters.”

CBD as a natural compound exists only in marijuana and in industrial hemp, which are both illegal to grow in the United States. Although industrial hemp contains more CBD than THC, the overall cannabinoid content of hemp plants is much lower than what’s found in CBD-rich marijuana strains. The kind of CBD-rich plants being grown for the medical market in the United States produce much more cannabidiol than fiber hemp plants.

Medical Marijuana, Inc. claims that it “does not grow, sell or distribute any substances that violate the United States Law or the controlled substances act.” Dixie X officials say they circumvent federal prohibition by importing CBD extracted from industrial hemp —not from marijuana — that is grown outside the United States in five different countries. MJNA won’t disclose which countries.

The initial extraction is performed by another Medical Marijuana, Inc. subsidiary, Phytosphere, which provides raw hemp paste to Dixie X and its sister firms. Like other industrial hemp products legally imported into the United States, this hemp paste apparently contains a minuscule amount of THC; hence it’s legal to bring it into the United States, according to Dixie officials.

Once they receive the crude hemp extract, Dixie personnel refine, purify, and filter the paste, turning it into the CBD oil that eventually goes into three Dixie X products: Dixie X Dew Drops (a tincture), Dixie Scrips (granulated powder in a capsule), and a topical “pain relief salve.”

Project CBD, an information service focusing on cannabinoid science and therapeutics, received samples of the Dixie Scrip capsules and the Dixie X tincture and submitted these for analysis to the Werc Shop in Los Angeles and Halent Laboratories in Davis, California. Project CBD did not test the salve.

Both analytical labs confirmed that the Dixie Scrip capsules (priced at $11 per unit) contain approximately 20 to 25 milligrams of CBD and one milligram of THC. The amount of THC in the capsules measured less than the federal government’s .3 percent limit for THC permitted in industrial hemp. “In order to be able to ship these products across state lines we need to keep the THC to a trace amount so we can service people all over the United States,” explained Dixie X marketing specialist Christie Lunsford.

The 20-something-to-one ratio of CBD-to-THC is similar to a CBD-dominant cannabis strain that’s available in California and other medical marijuana states. This CBD-dominant phenotype has been circulating under various strain names – Oracle, AC/DC, and Cannatonic, among others.

Test results from The Werc Shop indicated that the Dixie Scrip capsules were nearly devoid of terpenes, which were lost during processing. Terpenes, the compounds that give marijuana its unique smell, also have important therapeutic properties.

Creating CBD and THC from raw plant matter involves a process known as decarboxylation. When heated, raw CBD-Acid decarboxylates into neutral CBD and raw THC-Acid becomes neutral THC. But it takes twice as long (if not longer) to decarboxylate CBD than THC. And the decarboxylation process removes the volatile terpenes, which evaporate at much lower temperatures than are required to decarboxylate CBD and THC. Some cannabis extract-makers make a point of putting terpenes back into their decarboxylated products.

When tested by the Werc Shop and Halent, the Dixie X Dew Drops, a syrupy, cinnamon-flavored, glycerin-based tincture, was found to contain a negligible amount of THC (below .3% by weight in accordance with federal law) and a small amount of CBD.

The Werc Shop reported 1.51 milligrams per gram of CBD in a bottle containing one fluid ounce of tincture, which amounts to about 45 milligrams of CBD. Halent got slightly higher numbers: 2.1 mgs per gram of CBD, or about 62 milligrams of CBD in an ounce of the Dixie Dew Drops tincture. Halent also reported approximately 8 mgs of other medicinally-active cannabinoids (THC, CBG and CBC) in the tincture.

Both labs found CBD concentrations at significantly lower levels than the “approximately 100 mgs CBD and other cannabinoids” promised on the label of the one- ounce Dixie X Dew Drops ampule, which retails for $40 a bottle.

Halent also analyzed the contents of a two-ounce bottle of the Dixie X Dew Drops tincture, advertised as containing 500 mgs of CBD and other cannabinoids. Halent found 280 mgs of CBD plus 37 mgs of other cannabinoids in the two-ounce ampule, which sells for $160.

Lacking significant THC and terpene content, Dixie’s diluted CBD tincture is weak medicine, but it may have some value. “For some people, taking one to two milligrams of CBD a day can have a positive effect,” explains Allan Frankel, MD, a Los Angeles-area physician who specializes in CBD treatment regimens. “A small dose like this might help with anxiety or seizures, but most patients need larger doses of CBD along with substantial amounts of THC.”

Whereas Medical Marijuana Inc.’s press releases initially included sweeping claims about CBD’s therapeutic efficacy, the company has recently shifted its rhetorical gears as part of a rebranding make-over. Henceforth, Dixie’s CBD products will be marketed strictly as “hemp oil” dietary supplements and cosmetics rather than as curatives in order to comply with FDA rules. “We had a little bit of a misstep in our initial launch because of our backgrounds in medicinal cannabis,” Lunsford acknowledged. “We didn’t understand what claims were appropriate.”

Toning down the medicinal claims for Dixie’s CBD products seems appropriate given that their therapeutic value is limited by the paucity of biologically active terpenes and THC, which may result in disillusioned consumers who were hoping for more pronounced results. Others may benefit to some degree from these so-called food supplements. And for many people, the Dixie X CBD products might be the only way they can access cannabidiol, especially if Medical Marijuana, Inc. is able to market its products nationwide.

Whether Dixie’s CBD products are ultimately successful in the marketplace may come down to a matter of cost-effectiveness: Do they contain enough CBD on a dose-per-dollar basis to justify Dixie’s asking price when more concentrated CBD extracts, infused with a synergistic bouquet cannabinoids and terpenes, are becoming available in states where medical marijuana is legal?

As we go to press, we find this message from Dixie Botanicals on its website: “We have revised our labels for our small containers, and these small labels do not have enough room for the Supplemental Facts box.” Thus there is no indication of how much CBD is in these small containers, but consumers can allegedly learn “the precise amount of CBDs per serving” by visiting Dixie’s website.

"I'm tired of so called CBD companies claiming that what they provide is medicine. Anyone using a CBD from hemp product please be aware of what you're actually getting b/c it is not what you think. These formulations start with a crude and dirty hemp paste (contaminated with microbial life! I have seen this and these organisms decompose the paste. The paste perhaps even contains residual solvent and other toxins as the extraction is done in CHINA) made in a process that actually renders it unfit for human consumption. What these companies are doing is criminal and dangerous. In fact MJNA's RSHO is literally just this hemp paste diluted in hemp seed oil. No refinement at all!!! And what Dixie Botanicals is offering is beyond disturbing. I cannot keep quiet any more. And since I formulated most of these products as head of Dixie science, I feel responsible for spreading the truth. I left Dixie for ethical reasons but it is not enough to just walk away. These frauds need to be exposed for what they are. Look out for my tell all article coming soon and feel free to contact me directly with questions as it is time to blow the whistle. Let's keep this industry pure and safe." -- Tamar Wise, formerly head of Dixie Science

MJNA: Why I Say Sell

I have followed Medical Marijuana, Inc. (MJNA) closely for 9 months. It has been a story that has disgusted me as far as the lack of transparency and the poor corporate governance but also one that has offered hope, as the company seemed poised to capitalize on cannabis despite all these short-comings. Specifically, the company is able to ship CBD-based products derived from hemp to any consumer in the U.S. or even beyond.

I shared my most recent update at Seeking Alpha in an article that examined several issues that arose in the most recent quarterly filing. I submitted that article on Saturday 11/16, a day after the company had sneaked in its quarterly filing a day late and after the market had closed. I published with the caveat that the company hadn't yet released a press release. Today, almost four full trading sessions later, the company did so, and you can access it here. The p.r. lacked substance, failing to address why board members left (to go back to agriculture???) or why the company had turned to outside financing when CannaBank was supposedly capable of funding the company. Why did the company still not sell the 47mm shares allocated to fund research (and change the time-frame from three years to up to five years).

Rather than raise the points I have already addressed, I want to point to new issues that have arisen subsequently, all of which we have discussed at length on 420 Investor, the best place to learn about publicly-traded cannabis stocks.

CannaVest actually has begun selling shares at $1 (1.2mm)
The company didn't address most all of the issues I have discussed
"Wellness Services" was mentioned as shut-down. This is at odds with the OTC filing and also points to misrepresentations made in press releases last year
A former employee of Dixie has gone public with not only quality issues but also will be unveiling financial wrong-doing as well from what I understand
The company blatantly lied in its press release, confusing "sales" with "earnings" by stating that subsidiary "HempMedsPX posted net earnings of $248,859 in Q3, up from $6,448 in Q2."
I was optimistic that the company's improving sales momentum could drive the share price higher despite my concerns. Our trading-oriented model portfolio, which we call "Flying High", had a long position with a cost basis of just under $0.14, but we exited immediately on 11/13 upon learning about the dilution at CannaVest. I had been contemplating buying it back but was waiting for the press release, to see if they could somehow constructively address this mess. The stock traded as low as $0.105 today before closing down just slightly at $0.113.

What now? I know how hard it can be to take a big loss, but I suspect that MJNA will trade below $0.05 in the near future. The company's misrepresentations and poor financials have resulted in even its staunchest supporters exiting. Many have hoped for "uplisting", but the fact that their financial statements are rife with errors suggests to me it won't happen, even in 2015 as I had hoped. Further, I believe that the SEC, which the company discloses is "inquiring", will find plenty. One big issue is that CannaBank, then known as HDDC, appears to have failed to convey assets that it promised in exchange for control of the company.

MJNA was the industry bellwether. Now, all I can say is that at least it isn't Hemp, Inc. (HEMP), which has no real business beyond selling shares. Fortunately, a new bellwether has emerged, GrowLife (PHOT), and I expect more names to enter the public market in the near future. MJNA can't justify its current market cap of $110mm, and it lacks growth capital while not generating positive cash flow. All of this suggests to me that those remaining folks who were tricked by the company's misrepresentations earlier this year will exit, booking their losses to reduce capital gains tax and/or seeking out companies with better transparency.

If you are interested in investing in cannabis-related stocks, I hope you will consider joining us at 420 Investor. We get RAVE REVIEWS and the value is incredible. We will be raising the price effective 12/1 to $36 per month ($360 per year for annual subscription), but you can lock in the introductory price of $22 per month ($220 per year for annual subscription) until then. If you aren't satisfied, you can get a full refund within 30 days of subscribing by simply canceling, with no questions asked.

If you would like to access all of my articles on MJNA published on SA, you can do so here. If you would like to access my publicly-posted articles on the cannabis space, you can do so here.